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Unformatted text preview: Policy Watch Reform of the U.S. Postal Service R. Richard Geddes This feature contains short articles on topics that are currently on the agendas of policymakers, thus illustrating the role of economic analysis in illuminating current debates. Suggestions for future columns and comments on past ones should be sent to C. Eugene Steuerle, c/o Journal of Economic Perspectives , The Urban Institute, 2100 M Street NW, Washington, D.C. 20037. Introduction The U.S. Postal Service faces serious challenges. On the revenue side, the volume of letter mail is falling at a rate not seen since the Great Depression, in large part because of substitution to Internet-based communications. Although your mailbox may be bulging with ads, fliers and catalogs, revenue from advertising mail isn’t likely to make up the gap. On the cost side, the Postal Service’s ability to adapt quickly to declining mail volume is limited. Seventy-nine percent of its expenses are labor-related, with wages set through collective bargaining with binding arbitration. The federal government determines a substantial fraction of employee’s fringe benefits by statute. The Postal Service faces strong political pressure to leave unneeded mail distribution centers and underutilized post offices open, and to use outdated, labor-intensive technologies. Thus, while the Postal Service will probably run a modest operating surplus in 2005, its financial future is murky. The Presi- dent’s Commission on the United States Postal Service (2003, p. iv ) forecast that, even after assuming that postal rates continue to rise with inflation and taking account of the cost-saving measures now in effect, the Postal System will run an y R. Richard Geddes is Associate Professor of Policy Analysis and Management, Cornell University, Ithaca, New York. His e-mail address is ^ [email protected] & . Journal of Economic Perspectives—Volume 19, Number 3—Summer 2005—Pages 217–232 annual deficit of $4.5 billion by 2012 (on projected revenues of $81 billion for that year) rising to an annual deficit of $8.5 billion by 2017 (on revenues of $83 billion). 1 Moreover, the Postal Service already faces $75 billion in unfunded liabilities as shown in Table 1, including $7.6 billion for worker’s compensation, $3.5 billion for pensions, and a whopping $63.9 billion for retiree health care benefits. The Postal Service has been on the General Accountability Office’s list of high-risk federal programs since 2001 because of its financial situation (General Accountability Office, 2005, p. 42). Postal finances are not the only rationale for reform, however. A growing proportion of the mail is commercial in content, and the traditional rationale for government-owned monopoly of binding the nation together through delivery to all addresses six days per week is less compelling for advertising mail. Current arrangements also generate significant social costs through both productive and allocative inefficiencies. The Postal Service was last reformed in 1970, and postalallocative inefficiencies....
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